In this blog Post, I will be writing on THE STOCK EXCHANGE: The meaning of stock exchange. The Importance and functions of stock exchange market.
Meaning Of Stock Exchange
Stock exchange market is a highly organized market where investors can buy and sell existing securities like shares, stocks, debentures and gilt edge etc. This is a market where those who are interested in purchase of securities are brought into contact with the sellers.
The stock exchange is an essential part of the capital market. It serves as a source of Raising capital as well as a forum for financial investment. The market deals in Old existing shares only, i.e. new ones are not traded in it.
The stock exchange market ensure that every transaction must follow prescribe set of rules and regulations which are complex in nature.
Quoted companies are organizations whose shares are quoted in the stock exchange market.
The Nigeria stock exchange market is in Lagos with branches in Abuja and Port Harcourt. It was established in 1960 through the act of Parliament. Some of the company’s quoted in the market are Nestle Food Nigeria Plc., Nigerian Breweries Plc., Guinness Plc. and First bank Plc.
Now we are going to be looking at the importance and functions of Stock Exchange Market in commerce:
Importance of Stock Exchange
- An Avenue for Raising Capital: Capital can be raised by companies and government through the stock exchange.
- Provides Employment Opportunities: Another importance of stock exchange is that it provide employment opportunity for brokers, jobbers, Clarks and others.
- Provides Information to Investors: Investors, especially foreign investors, can obtain necessary information about the investment situation of a country.
- Facilitate Transfer of Investment: An investor can withdraw his investment from a company to invest in another company.
- It is a Market for Investment: The stock exchange provide an avenue for people to invest in any sector of the economy.
- It provides Yardstick for Measuring Performance of Companies: The price quoted can be used to measure performance of a business as only sound and efficient companies are quoted on the stock market.
- It Leads to Increase in the standard of Living: The is an importance of stock exchange. Investment opportunities will lead to more income, which will affect consumption, thereby increasing the standard of living of the people of a country.
Functions Of Stock Exchange Market
Below are the functions of stock exchange market in commerce. They includes:
- Fund Mobilization: Through the stock exchange market which is a part of the capital market, fund or capital can be raised or mobilized by companies and investors.
- Sales of Securities: Sales of securities is another functions of stock exchange. investors can buy and sell old securities like stock, shares etc.
- Financial Market for Investments: It is a market where people can invest their money in shares of companies.
- It Facilitate the Transfer of Shares: Stock Exchange facilitate the transfer of ownership of shares between investors. Investors who want to withdraw from one company to another can do so without any hindrance.
- Provides Avenue for Government to Raise Fund: Government can raise fund by selling Bond or gilt edge in the stock market.
- Valuation of Price of Securities: Another functions of stock exchange is the evaluation of price of security. The market, through the forces of demand and supply can fix price for securities.
- Provision of Professional Advice: The stock market provide professional advice to investors on sales and management of securities
- Provision of Rules and Regulations: The market is charged with the responsibility of providing rules and regulations that will ensure smooth operation on the floor of the stock exchange.
- Encourages Companies to be More Efficient: The market ensure that companies quoted in the exchange have good reputation; this will gear up companies to perform well so that they can be listed
See you on my next class as we study more on this subject and capital market. To join the class [Click Here]